United States District Court, D. Maine
DECISION AND ORDER ON APPELLANT’S MOTION FOR
LEAVE TO APPEAL FROM THE BANKRUPTCY COURT’S ORDER
DENYING HIS MOTION TO ABSTAIN AND REMAND
BROCK HORNBY UNITED STATES DISTRICT JUDGE
debtor in this Chapter 11 bankruptcy matter removed a related
state lawsuit from the Business and Consumer Docket in
Cumberland County, Maine, to the federal Bankruptcy Court.
One of the parties to that removed lawsuit moved the
Bankruptcy Court to abstain and remand the lawsuit back to
the Business and Consumer Court. The Bankruptcy Court denied
the motion, and the moving party now requests leave to appeal
the Bankruptcy Court’s order if I conclude that his
appeal is interlocutory. In the alternative, he appeals as of
right from the Bankruptcy Court’s order. I conclude
that the appeal is interlocutory, and I Deny the motion for
leave to appeal. The appeal is therefore Dismissed without
debtor Meridian Medical Systems, LLC (MMS) is a closely-held
company that was founded by Kenneth Carr
(Kenneth). Appellant’s Mot. for Leave (ECF
No. 2) at 2. Until 2010, Kenneth owned 99% of MMS and
served as Manager, Chairman, Chief Executive Officer,
Treasurer, and Secretary. Id. In late 2010 and early
2011, Kenneth gave his son, Jeffrey Carr (Jeffrey), an
ownership interest in MMS. Id. In 2011, Robert
Allison (Robert) became a Member of the closely-held company.
2010 to 2013, Kenneth made a significant number of personal
loans to MMS with no specified time for repayment, and
Kenneth provided consulting services on behalf of MMS, for
which he is also owed money. Id. at 3; Adv. Proc.
1-5 at 17. Kenneth asserts that he is the largest unsecured
creditor in MMS’s Chapter 11 bankruptcy case,
see Appellant’s Mot. for Leave (ECF No. 2) at
3, but he has not yet filed a proof of claim. See D.
83, 92; Tr. of Hr’g, Bankr. Ct., Nov. 3, 2015 (ECF No.
13) at 7.
2013, Jeffrey and Robert removed Kenneth from his management
positions with MMS. Adv. Proc. 1-1 at 5-6. Kenneth then
formed another competing company, Applied Thermologic, LLC
(Applied Thermologic). Id. at 11. In 2014, MMS filed
a complaint against Kenneth and his new company in the Maine
Superior Court alleging breach of contract, misappropriation
of trade secrets, conversion, breach of fiduciary duty,
fraudulent concealment, and negligent misrepresentation.
Id. at 14-21. The same day that MMS filed its
complaint, it filed an application to transfer the state
court matter to the Business and Consumer Docket, which was
granted. Adv. Proc. 1-4, 3-3. Thereafter, Kenneth filed an
answer and counterclaims against MMS and filed a third-party
complaint against Jeffrey and Robert alleging breach of
fiduciary duty, violation of Maine’s LLC Act, breach of
contract (including implied covenant of good faith and fair
dealing), intentional infliction of emotional distress, and
negligent infliction of emotional distress. Adv. Proc. 1-5,
1-6 at 6-11. Jeffrey and Robert, in turn, filed their answer
and third-party counterclaims against Kenneth alleging much
of the same. Adv. Proc. 3-11.
over a year litigating in the Business and Consumer Court, in
2015 MMS filed in federal Bankruptcy Court a voluntary
petition under Chapter 11 of the Bankruptcy Code. D. 1. MMS
also filed a verified adversary complaint, seeking to extend
the automatic stay to Jeffrey and Robert (MMS’s
managing Members) and to enjoin Kenneth from pressing his
claims against Jeffrey and Robert in state court. D. 39; I
Adv. Proc. 1. MMS also removed the state lawsuit to the
Bankruptcy Court under 28 U.S.C.A. § 1452 (2010 &
Supp. 2015). D. 38; Adv. Proc. 1. Kenneth then moved the
Bankruptcy Court to abstain, arguing that abstention was
mandatory under 28 U.S.C.A. § 1334(c)(2) (2010 &
Supp. 2015), or, in the alternative, that the Bankruptcy
Court should exercise its discretion to abstain and remand
the case to the Business and Consumer Court because it
involved only state common and statutory law issues and
“did not implicate any bankruptcy issues.” Adv.
Proc. 8. The Bankruptcy Court heard argument twice on
Kenneth’s motion to abstain and denied his motion from
the bench. Tr. of Hr’g, Bankr. Ct., Nov. 3, 2015 (ECF
No. 13); Tr. of Hr’g, Bankr. Ct., Nov. 17, 2015 (ECF
No. 13-1) at 19; Adv. Proc. 21. The Bankruptcy Court also
issued a written order denying Kenneth’s motion to
abstain, Adv. Proc. 26, and denied his motion for findings of
fact and conclusions of law, Adv. Proc. 43. Kenneth timely
filed his notice of appeal and his motion for leave to appeal
the Bankruptcy Court’s order with this court. ECF No.
appellate court, the district court is “duty-bound to
determine . . . jurisdiction over this appeal before
proceeding to the merits.” In re Henriquez,
261 B.R. 67, 69 (B.A.P. 1st Cir. 2001). The District Court or
the Bankruptcy Appellate Panel may hear appeals from
“final judgments, orders, and decrees[, ]” 28
U.S.C.A. § 158(a)(1) (2010 & Supp. 2015), or
“with leave of the court, from other interlocutory
orders and decrees[, ]” id. § 158(a)(3).
The appellant Kenneth elected to have his appeal heard by the
District Court. Id. § 158(c)(1)(A); ECF No. 1
first issue I must address is whether the Bankruptcy
Court’s order was final and therefore immediately
appealable as a matter of right pursuant to 28 U.S.C.A.
§ 158(a)(1). The First Circuit definitively ruled on
this issue in In re González, 795 F.3d 288
(1st Cir. 2015), cert. denied sub nom. Sitka Enters.,
Inc. v. Miranda, 136 S.Ct. 587, 193 L.Ed.2d 468 (2015).
In that case, a plaintiff in a commonwealth court case in
Puerto Rico moved the Bankruptcy Court to abstain from
hearing a matter that the bankruptcy trustee had removed from
commonwealth court to the Bankruptcy Court. Id. at
289. The Bankruptcy Court denied the motion to abstain, the
District Court dismissed the appeal as a non-final order over
which it did not have jurisdiction, and the First Circuit
affirmed the dismissal. Id. at 289-92. The First
Circuit’s reasoning in González applies
with equal force to the appellant’s claim here:
Under the general federal removal statute, this circuit
treats an order refusing remand to state court in a diversity
case as a non-final interlocutory order which is not
immediately appealable. BIW Deceived v. Local S6, Indus.
Union of Marine & Shipbuilding Workers, 132 F.3d
824, 829 (1st Cir. 1997). Other courts have reached the same
conclusion in bankruptcy as to a refusal to abstain under [28
U.S.C.A.] § 1334(c)(2), noting that such a refusal
“d[oes] not ‘end[ ] the litigation on the merits
and leave [ ] nothing for the court to do but execute the
judgment.’” Beightol v. UBS Painewebber,
Inc., 354 F.3d 187, 189 (2d Cir. 2004) (Sotomayor, J.)
(second and third alterations in original) (quoting
Coopers & Lybrand v. Livesay, 437 U.S. 463, 467,
98 S.Ct. 2454, 57 L.Ed.2d 351 (1978)); accord Schuster v.
Mims (Matter of Rupp & Bowman Co.), 109 F.3d 237,
240-41 (5th Cir. 1997); see also Krasnoff v. Marshack (In
re Gen. Carriers Corp.), 258 B.R. 181, 187 (9th Cir. BAP
2001) (collecting cases). We agree. A refusal to abstain
“merely determine[s] where the case w[ill] be
adjudicated; it d[oes] not resolve any of the substantive
issues raised in the lawsuit.” Beightol, 354
F.3d at 189; see also 1 Collier on Bankruptcy ¶
5.08 (noting that “orders in which the merits are
not determined” are generally not final).
Id. at 291 (alterations in original) (footnote
omitted). Therefore, Kenneth’s appeal here is
interlocutory, and the issue is whether I should grant him
leave to appeal.
158 of Title 28 of the United States Code allows an appeal of
an interlocutory order to be taken “with leave of the
court[.]” 28 U.S.C.A. § 158(a)(3). Although
section 158 provides discretionary authority to hear appeals
of interlocutory orders, it provides no express criteria to
guide that discretion. See id. Consequently,
“most courts utilize the same standards as govern the
propriety of district courts’ certification of
interlocutory appeals to the circuit courts under [28
U.S.C.A.] § 1292(b).” In re Bank of New
England Corp., 218 B.R. 643, 652 (B.A.P. 1st Cir. 1998);
see In re Jackson Brook Inst., Inc. (Jackson Brook
I), 227 B.R. 569, 579 (D. Me. 1998) (collecting cases).
Under this standard, leave to appeal is appropriate for
orders that concern (1) a controlling question of law, (2)
for which there is a substantial ground for a difference of
opinion, and (3) the immediate resolution of which may
materially advance the ultimate resolution of the litigation.
In re Flynn, 402 B.R. 437, 441 n.4 (B.A.P. 1st Cir.
2009); In re Bank of New England Corp., 218 B.R. at
652; Jackson Brook I, 227 B.R. at 581. “Courts
have stated that interlocutory certification under section
1292(b), and thus leave to appeal under section 158(a)(3),
should be used ‘sparingly and only in exceptional
circumstances.’” Jackson Brook I, 227